In 2013, we can anticipate that some key storylines in Russian tax policy, legislation and case law will continue. Most of them date back even beyond 2012, having started in 2011 or earlier.

The new Russian transfer pricing rules, enacted in 2011 and in force since 2012, were expected to shift the burden of proof to a taxpayer, i.e. a taxpayer was supposed to put together a dossier justifying its prices or they could expect a bill from the Federal Tax Service’s new ‘special task force’, rumoured to be made up of foreign-trained specialists with business, including tax consulting, experience.

However, the first notifications of controlled transactions will not be filed until May 2013; only then can the first specialized transfer pricing audits begin. Accordingly, no case law under the new rules has yet been established and all that is available to taxpayers to help them determine the stance fiscal authorities will take on controversial issues under the new rules are certain clarifications of the Finance Ministry and Federal Tax Service. Legislative amendments were expected in the first half of 2012, but only in September 2012 were technical amendments introduced by a member of the upper house of Parliament, and these were revoked in December.

It is a formidable challenge for taxpayers to comply with the new rules, and not just because of the economical and statistical issues in choosing the right pricing method and determining the arm’s-length range of prices. There are also complex legal and technical issues in determining whether certain transactions fall under the rules. The definition of related parties is vague and the statutory list of types of them is not (and can’t be) exhaustive. The thresholds of trade volumes that trigger special compliance are precise only in amount (e.g. RUB80 million for resident vs. non-resident transaction) but not in terms of how this amount is to be calculated. The Finance Ministry has issued an opinion that a transaction that is below thresholds can be audited if it shows any signs of intentional tax evasion. This is no surprise for tax professionals familiar with policies and case law, but would not be clear to a layman who has only read the statute.

In this regard, it is worth mentioning that if trade volumes exceed the threshold, any and all transactions fall under the rules, i.e. both the supply contract worth RUB5 billion and the intra-group trademark use and services agreement worth RUB5 million can be audited.

The only certainty regarding how the new transfer pricing rules will be implemented is that the Federal Tax Service’s ‘special task force’ has, like most taxpayers, been preparing for serious inquiries into Russian intra-group pricing practices: for example, a joint task force was established with the Federal Antimonopoly Service to monitor prices.

Taxpayers with the special ‘major taxpayer’ status were entitled to request an advanced pricing agreement with the authorities concerning transfer pricing issues. It was expected that only a small number of these APAs would be concluded at the outset (a maximum of 20 or so). At the time of writing, there are actually only two, both with major state-controlled oil companies. As far as we know, the process of negotiating and executing these contracts was tortuous and complex. At the same time, further APAs are under discussion, and more are expected to be concluded.

Another new aspect of legislation regarding the taxation of groups of companies is the ‘consolidated group of taxpayers’. This allows losses to be offset within a group, with taxes calculated according to a group apportionment formula based on asset value and payroll instead of arm’s-length prices. This was available only to the biggest groups in 2012, and the tax authorities registered around a dozen agreements to create consolidated groups of taxpayers. No plans to make tax consolidation more widely available had been announced by the end of 2012, but this could happen in 2013.

Also worth mentioning are some changes in the taxation of capital assets that will be in force from the beginning of 2013.

The Tax Code requires that the amortisation premium for corporate profit tax purposes to be reinstated if a capital asset is sold within five years of being acquired. This requirement is intended to combat assets being artificially acquired and then disposed of with the sole or primary purpose of obtaining an artificial tax benefit in form of a premium that contradicts the economic facts (no acquisition and disposal of property actually took place in an economic sense). From the beginning of 2013, only a sale to a related party will trigger reinstatement (the five-year term is left intact). Therefore a business may apply the premium if it disposes of an asset in an economic sense.

Movable property will not be taxed if it is acquired as a capital asset after the beginning of 2013 (this exemption applies to property tax only).

In most other areas of tax law the major legal issues are mostly raised and decided by the Supreme Commercial Court rather than by the legislature. This will probably continue to be the case in 2013, and during the year several controversial issues originating in 2011 or early in 2012 are expected to be resolved. These issues include:

- the consequences of ‘thin capitalisation’ (loans granted or secured by a related party, debt to equity ratio above three, deductibility of interest) when the relevant double tax treaty contains only a general associated enterprises clause and makes no specific provision regarding thin capitalisation;

- the imposition of VAT on payments from investors in construction projects;

- VAT adjustments when bonuses are granted to buyers (mostly b2b).

However, it is possible that legislation could follow on these and other issues, e.g. the strategic so-called ‘de-offshorisation’ policy proclaimed by the country’s leadership.

The Supreme Commercial Court is expected to finalise the long-awaited set of opinions on various tax collection issues in 2013, with an emphasis on pre-trial settlement between taxpayers and tax authorities.